Correlation Between Wells Fargo and B of A

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Can any of the company-specific risk be diversified away by investing in both Wells Fargo and B of A at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Wells Fargo and B of A into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Wells Fargo and Bank Of America, you can compare the effects of market volatilities on Wells Fargo and B of A and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Wells Fargo with a short position of B of A. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wells Fargo and B of A.

Diversification Opportunities for Wells Fargo and B of A

0.97
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Wells and B of A is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Wells Fargo and Bank Of America in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank Of America and Wells Fargo is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Wells Fargo are associated (or correlated) with B of A. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank Of America has no effect on the direction of Wells Fargo i.e., Wells Fargo and B of A go up and down completely randomly.

Pair Corralation between Wells Fargo and B of A

Considering the 90-day investment horizon Wells Fargo is expected to under-perform the B of A. But the stock apears to be less risky and, when comparing its historical volatility, Wells Fargo is 1.04 times less risky than B of A. The stock trades about -0.05 of its potential returns per unit of risk. The Bank Of America is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  3,658  in Bank Of America on September 5, 2022 and sell it today you would lose (50.00)  from holding Bank Of America or give up 1.37% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Wells Fargo  vs.  Bank Of America

 Performance (%) 
       Timeline  
Wells Fargo 
Wells Performance
5 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Wells Fargo are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Wells Fargo may actually be approaching a critical reversion point that can send shares even higher in January 2023.

Wells Price Channel

Bank Of America 
B of A Performance
6 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Bank Of America are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, B of A may actually be approaching a critical reversion point that can send shares even higher in January 2023.

B of A Price Channel

Wells Fargo and B of A Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Wells Fargo and B of A

The main advantage of trading using opposite Wells Fargo and B of A positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wells Fargo position performs unexpectedly, B of A can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in B of A will offset losses from the drop in B of A's long position.
Wells Fargo vs. East West Bancorp
The idea behind Wells Fargo and Bank Of America pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
B of A vs. East West Bancorp
Check out your portfolio center. Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try Probability Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.

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